JPMorgan agrees to pay $920 million for London Whale loss

The settlement resolves claims by the US SEC, Office of the Comptroller of the Currency, Federal Reserve and the UK Financial Conduct Authority

JPMorgan Chase & Co, seeking to end probes of a trading debacle that damaged its reputation for risk-management, agreed to pay about $920 million for failing to implement adequate controls and providing incomplete information to regulators and its board.

The settlement resolves claims by the US Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Reserve and the UK Financial Conduct Authority, the Fed said on Thursday in a consent order against the bank. The Justice Department and Commodity Futures Trading Commission are among agencies still investigating the trading loss in London at the chief investment office, a unit of the New York-based bank that was supposed to help reduce risk and manage excess deposits.

The more than $6.2 billion in losses led to the indictment of two former traders this week, the departure of at least four senior managers and a blow to the reputation of CEO Jamie Dimon, 57, whose pay was cut in half.

JPMorgan restated results and its market value fell by almost $51 billion after disclosing errant bets made by Bruno Iksil, a trader who became known as the London Whale because his positions were so large. JPMorgan "exercised inadequate oversight over the CIO and failed to implement adequate controls to ensure the full and adequate disclosure of relevant information to senior management" and the board, the Fed said in the consent order.

JPMorgan acknowledged it violated federal securities laws, according to an SEC statement.

Cardinal rule
“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” George S Canellos, co-director of the SEC’s Division of Enforcement, said in the statement. “JPMorgan's senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company's problems and determine whether accurate and reliable information was being disclosed to investors and regulators."

Iksil's former boss, Javier Martin-Artajo, and junior trader Julien Grout were indicted Sept. 16 on five charges each, including securities fraud and conspiracy, for allegedly seeking to hide losses as they began to mount. Prosecutors have said Iksil, who wasn't charged, is cooperating with them.

Bank Penalties
The OCC's $300 million fine was the biggest levied against the bank today, followed by the FCA at 137.6 million pounds ($221 million). The Fed and SEC each fined JPMorgan $200 million.

While the OCC and Fed censured JPMorgan this year and ordered it to strengthen internal controls, the agencies didn't immediately assess fines.

Today's settlements don't close investigations of the trades by the Justice Department, CFTC and state attorneys general, people familiar with the matter said this week. The CFTC has been investigating whether the bank manipulated trading in credit derivatives while the U.S. Attorney's Office in Manhattan, which is part of the Justice Department, is conducting a criminal probe.

"The settlement will not resolve the full extent of the bank's liability and the consequences that could arise," said Samuel Buell, a former prosecutor who now teaches law at Duke University Law School.

'Open-Ended' Cost
The cost for the bank is still "open-ended," said Charles Peabody, an analyst at Portales Partners LLC in New York. Investors want some clarity on the seriousness of the criminal probe, he said. "I'm not sure that these settlements will conclude anything because you still have the CFTC, the DOJ and state AGs investigating."

The U.S. Senate Permanent Subcommittee on Investigations accused JPMorgan in a 301-page report of hiding losses, deceiving regulators and misinforming investors. The panel's chairman, Michigan Democrat Carl Levin, referred its findings to the SEC and Justice Department in April.

Former Chief Investment Officer Ina Drew and her head of international CIO, Achilles Macris, were among the top executives who left the bank, along with Chief Financial Officer Douglas Braunstein and Jes Staley, CEO of the investment bank. JPMorgan clawed back more than $100 million in pay from Drew and other managers.

Drew, 57, told lawmakers at a March hearing that she wasn't aware of what she called the "deceptive conduct" of her subordinates until after she left the bank.

JPMorgan's board cut Dimon's pay by 50 percent for 2012 after concluding that he bore some responsibility for the debacle. It also credited his leadership for the lender's performance. JPMorgan reported a third straight year of record profit in 2012 with $21.3 billion in net income.

FBI, SEC
The Federal Bureau of Investigation and SEC have been scrutinizing public statements, calls with investors and an April 2012 earnings presentation by Dimon and Braunstein, Bloomberg News reported in June, citing five people with knowledge of the probes.

The criminal investigation has looked at, among other issues, whether traders painted the tape, a form of market manipulation that allows them to inflate the value of their positions, three of the people said at the time.

The criminal case is U.S. v. Martin-Artajo, 13-cr-00707, U.S. District Court, Southern District of New York (Manhattan).

The SEC case is Securities and Exchange Commission v. Martin-Artajo, 13-cv-05677, U.S. District Court, Southern District of New York (Manhattan).